To alleviate poverty, transfer cash to the poor

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By Manish Shah

Almost 1.5 billion people are living on less than a dollar a day. They lack secondary school education, medical care, work, life insurance and clean water. Most importantly, they lack money.

In the last decade, governments in the Third World countries have experimented with a new concept in their war against poverty. This involves giving out money directly to the poor. India’s National Rural Employment Guarantee Scheme, Mexico’s Oportuni-dades and South Africa’s Child Support Grant are examples of such programs.

The cash transfer programs got their start in Mexico. In 1990, Mexico instituted a program called Progresa (now called Oportunidades) which initially targeted 300,000  families. The program now reaches one in four Mexicans. The average cash grant is $38 per household per month. The grant is more than 25 percent of average household income of the   rural poor. Cash transfer  programs like the ones in Mexico and Brazil come with strings attached. To be eligible, the family members need to regularly go for health checkups and need to enroll their kids in school. In countries like South Africa the grant is given as a noncontributory pension with no strings attached.

Small money transfers to the poor households help them get access to new economic opportunities, better healthcare and education. Without these funds from the government, the cost of transport, medicines and job search becomes prohibitive for the poor. Also, since these grants are given mostly to women, they play a significant role in bringing gender equality to the historically male dominated households.

Contrary to popular belief, the poor spend their money wisely. Studies have found that the poor spend mostly on food and children. They invest the surplus into assets such as working animals or tools   for their home-based busi-nesses. 

Initial studies show that cash transfer programs are an efficient way to alleviate poverty. However, since cash transfer programs are in their infancy, these studies only reflect a decade worth of data. The true measure of their success will be their ability to be a catalyst for intergenerational change.

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